Libya’s economy: so much potential, so many problems

Libya's economy holds potential, but numerous issues hinder its progress. Since 2011, the country has experienced frequent crises, primarily driven by political instability and conflicts over oil resources. This has disrupted production, deterred investment, and hindered modernization, which makes up more than 95% of Libya's foreign currency revenue.

In 2014, political divisions emerged, resulting in two rival governments: one in the west (capital, Tripoli) and one in the east (Benghazi). This division has persisted for over a decade, creating an obstacle to investment. Over time, the state budget has expanded, with spending in Libyan dinars increasing while the currency's value has plummeted. The dollar-to-dinar exchange rate has surged by more than 800% in the past five years.

Trade Minister Suhail Abu Shiha from Libya's Tripoli-based Government of National Unity (GNU) has warned that delays in implementing economic and monetary reforms are costing the economy $12bn annually. These losses are attributed to lost economic opportunities, structural inefficiencies, and the burden of fuel subsidies and misallocation of public funds to unproductive assets. Salaries and operating costs account for more than 80% of total recorded expenditure, while development spending only receives 3%.

Experts argue that Libya's economic challenges stem from an overly dependent model on government spending and oil revenues, with insufficient investment in productive sectors. Monetary policy is also insufficient to address the problem. Meaningful reform would require reducing public spending, restructuring subsidies, modernizing the banking sector, creating a better investment climate, and empowering private enterprise.

Coordination among the institutions managing the economy, such as the Central Bank of Libya, the National Oil Corporation, and the ministries of economy and finance, is crucial for the country's prospects. Immediate priority should be given to coordinating economic, fiscal, and monetary policies within a unified national framework. A plan to monitor domestic and international economic developments continuously and respond swiftly is essential.

Despite the opportunities in Libya's oil and gas sector, US envoy Massad Boulos has sought to bridge political and institutional divisions to bring rival authorities together. However, the absence of a stable legislative and institutional framework limits the confidence of multinational companies in committing to big projects in Libya.